Solo quant trading
Not in real estate, currently a math student
Theoretically, is it realistically even possible for one person to start there own prop trading firm? I understand this would mean identifying a strategy, algo development, backtesting, going live, managing risk, and continuous research. Lets assume AUM is tiny (~$5mm). Would it even be possible for one person to do all of the above?
I think a better question is "where is a math student going to pull $5mm from?"
wasn't thinking about this in the short term. I was wondering how difficult it would be to do later in my career should the opportunity arise
why do you need a "prop trading firm" ?
if you are just an individual, regardless of how much $$ you are trading (and 5mm is small in this world), just open up a brokerage account with a firm that lets you access the broker API (application programming interface) and trade your own account.
checkout Interactive Brokers and see if they offer what you need.
I mean if the opportunity arose one day down the line, would it be possible to start one on my own with the goal of building into a real firm. I didn't mean to set up the prop trading firm structure just to trade on my own. Appreciate the response nonetheless!
there are 4 reasons to start a firm, rather than just invest yourself or join an existing firm.
1) you aren't a good trader yourself
2) you are an ok, trader, but your real talent is identifying and nurturing other good traders (this was Izzy at Millenium)
3) your strategy has maxed market capacity for your AUM, and you want to add more strategies to manage that excess capital (Ken at Citadel)
4) you are really good at raising capital from investors
of course anybody can "start a firm" but if you don't have the talent / ability to raise outside capital....why would you?
Yes it is. It is definitely possible to trade US equities with daily rebalance alone given the right chops and experience. I would estimate that in the case of building everything single-handedly it would require 6-12 months of development and max capacity (GMV) of 50-100 mills. Beyond that it requires building out a team or using an already developed infra. However, it is hard.
Appreciate the response. Probably a difficult question to answer, but what level of education do you think is required to even attempt something like that?
I think the more important question is what level of "experience" required to be able to do this. Working in a more established firm will help you learn the whole process (assuming that firm is not silo-ed), which would help you bypass all the time you need to learn and explore on your own.
At this point it is more about experience than education. However, having the right advanced education helps to understand inner workings of required algorithms slightly better than competition, which could lead to a major increase to the longevity of operation.
Go read the introduction to de Prado’s book Advances in Financial ML. Then read the introduction to ML for Asset Managers. It is extremely difficult - even to determine whether or not your strategy actually works; there are many ways to screw up backtesting. I worked in a research lab and we concluded it wasn’t worth the time we were spending - that’s how hard it is.
Yes you could come up with something unique. Yes it might actually work. It’s just that the chance of that is very low if not infinitesimal, especially if you are only working with publicly available data (most papers published in the discipline are actually false positives, for example).
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